GE: No Make-Up Needed

General Electric (GE) is finally getting rid of the plastics division that has dogged its earnings for several quarters. It appears that Saudi Basic Industries will pay $11 billion, which The Wall Street Journal says is more than was expected  What the company’s board is not doing is remaking the company.

GE has clearly decided to keep its conglomerate status with divisions in the entertainment, infrastructure, industrial, healthcare, and consumer and commercial marketing businesses.

GE is making a bet that could well pay off. In a bull market, its stock has done poorly. But, as the S&P has flattened over the last six months, GE’s shares are up 8%. Granted, part of that is due to break up rumors.

GE has become a stock which does OK when the markets are good, but more than OK when markets are poor. From 2000 to 2002, when the Nasdaq bubble collapsed and the markets went through 9/11, GE outperformed the broad market by a wide margin. Until the last six months, it performance from 2002 on was nothing special.

And, perhaps this is the wisdom of the GE management and board. Build a company that will always do well, and, at times, especially bad times, may do better. For long-term investors, that is not so bad.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about